Thoughts About Term Sheets Amir M. Gruber, Attorneys @ Law

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Transcript of Thoughts About Term Sheets Amir M. Gruber, Attorneys @ Law

  • Thoughts About Term Sheets Amir M. Gruber, Attorneys @ Law

  • Economics & ControlReturn on investment

    Control mechanisms

  • Economics

  • Pre/Post Money ValuationFlat/DownAnti Dilution Full Ratchet, Weighted AverageOption Pool allocated/unallocatedFully Diluted BasisDividends NON-cumulativeLiquidation Preference 1 . . . . . 10X; participation (double dip)

    Pre & Post, Flat & DownIThe Series A Preferred will have a liquidation preference of 2 times the original issue price per share (2X), plus accrued and unpaid dividends (if any) over all other shares and classes of the Companys capital stock. IIAny proceeds available for distribution to equity holders after the payment of the Series A Preferred liquidation preference will be distributed among holders of Ordinary Stock and Series A Preferred on a pro-rata basis (assuming the Series A Preferred is on an as-if-converted basis).

  • Liquidation preference and foundersExit @ $10M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyExit @ $10M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference for investor: (2 X $1M) + 20% X ($10M-$2M) = $3.6MExit @ $10M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference for investor: (2 X $1M) + 20% X ($10M-$2M) = $3.6M

    Total for investor $3.6MExit @ $10M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference for investor: (2 X $1M) + 20% X ($10M-$2M)=Total for investor $3.6MFounders Share the Balance of $6.4M ($10M - $3.6M)Exit @ $10M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference for investor: (2 X $1M) + 20% X ($10M-$28M)=Total for investor $3.6MFounders Share the Balance of $6.4M($10M - $3.6M)Exit @ $10M

  • Liquidation preference and foundersExit @ $2M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyExit @ $2M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference (2 X $1M) + (20% X $0M)= Exit @ $2M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference (2 X $1M) + (20% X $0M) = $2M Investor gets $2MExit @ $2M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference (2 X $1M) + (20% X $0M) = $2MInvestor gets $2MFounders Share the Balance of $0MExit @ $2M

  • Liquidation preference and foundersPreferred A investor originally invested $1M for 20% post moneyCalculating liquidation preference (2 X $1M) + (20% X $0M)= Investor gets $2MFounders Share the Balance of $0MExit @ $2M

  • ControlControl mechanisms

  • Board of Directors# (3 5)Composition (founders/investors/industry)% (when does it stop to make sense)

  • Protective Provisions/Veto RightsBoard/General MeetingFuture Preferred RoundsAs long as any Preferred Stock remains outstanding, consent of the holders of a majority of the Series A Preferred, voting together as a class (on an as-if-converted basis), shall be required for(i) any change in the rights, preferences or privileges of the Preferred Stock, (ii) increase or decrease the authorized number of shares of any class of capital stock,(iii) create (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to, or on a parity with the Series A Preferred, (iv) any merger, other corporate reorganization, sale of control, or sale of all or substantially all of the assets of the Company, (v) amend or waive any provision of the Companys Articles of Association which may affect the Preferred Shares, (vii) any voluntary dissolution or liquidation of the Company, or (viii) pay or declare any dividend on any capital stock.

  • Drag/Bring AlongIn the event that, prior to the IPO, the holders of (i) a majority of Preferred A Shares, and (ii) 65% of all shares of the Company on an as-converted basis agree to an offer to sell all their shares to a third party, and such offer is conditional upon the sale of number of shares of the Company exceeding the number of shares held by such shareholders, all shareholders shall be required to participate in such sale on the same terms and conditions. In the event that an amount of $10,000,000 or more shall be distributed to the shareholders in such transaction, then the consent of the majority of Preferred A Shares shall not be required. Proceeds shall be distributed in accordance with liquidation preferences

    Forcing a sale on the minority

  • Doing Things with SharesPreemption & Over AllotmentFirst RefusalCo SaleNo Sale

  • Misc.No ShopNon Binding Nature